Kevin Walmsley

Deal for World's Largest Offshore Wind Farm Finalized

In the past twenty years we've moved away from clean nuclear power, to getting our energy from burning food (ethanol) and building big windmills.

Hopefully twenty years from NOW, we'll be able to look back and realize how foolish it all was.

Berkshire Hathaway: Proof That the CDS Market Is Irrational

Amen.


On Mar 08 08:39 AM Jimmy Lathrop wrote:
A heavy volume of CDS bets
> against a company doesn't drive the share price down, poor performance
> of a company drives a stock down. Don't start crying about how CDS
> killed the mega-banks, we all know they are actually insolvent and
> it is only through accounting sleigh of hand and politicians needs
> for jobs post-office that keep them lurching forward.

Berkshire Hathaway: Proof That the CDS Market Is Irrational

Wow. Maybe we should go back to the barter system too. Your "small village" isn't likely to figure out puts and calls pricing, the Fed discount window, or an actuarial table. That doesn't mean we should throw away the options market, central banks, or insurance companies though. Maybe your Potemkin Village should buy a book, or take a finance course. Just because I don't understand how a fax machine works doesn't mean we should do away with them.


On Mar 07 06:19 PM korba wrote:

> I don't have a complete undestanding of CDS. But, from the comments
> here, I sense that most people, not deeply involved in financials,
> are having a tough time understanding this. I treat this is as a
> negative for CDS.
>
> Recent finanical crisis are leading me to believe in the following:
> a financial transaction is reasonable as long as it can be handled
> by common public. If you can imagine implementing in a small village
> with people understanding it fully, it may be a good financial idea.
>
>
> CDS don't seem that way. They may look like innovative ideas initially,
> but in general, they seem like financial tricks.

Berkshire Hathaway: Proof That the CDS Market Is Irrational

I reject the notion that a rise in the premiums of BRK relative to that of the Vietnamese government is tantamount to an irrational market. Vietnam, like any sovereign government, can print their way out of a default; the resulting inflation might annihilate the principal value of the outstanding debt, but it takes default off the table.

It's amusing to watch posters who've only learned of credit default swaps in the past few months now militating for the government shutting them down. I presume they wouldn't seek to ban homeowners' insurance simply because premiums took off. What WOULD happen in the event of shutting down the CDS market is an immediate rise in the yields in the bonds of the issuing companies, as well as municipal governments. If you can't protect your fixed-income investment against default risk, you'll demand substantially higher yields. And higher yields raise the cost of capital to these companies, increasing the likelihood of their default.

The Law of Unintended Consequences, and all that. Be careful what you ask for. Maybe if BRK CDS premiums are spiking, the market is trying to tell you something that merely doing away with CDS's isn't likely to fix.